Valuation Flashcards
Can you briefly explain the DRC method?
Method of last resort and there usually no market evidence for that asset class.
Tends to be used when the property is not traded on the open market. Usually for insurance or rating purposes. Used for owner occupied property.
Types of properties include; Ancient monument, dilapidated castle, sewage works, church, lighthouse.
Methodology:
Value of land in its existing use (assume planning permission exists)
Add current cost of replacing the building plus fees less a discount for depreciation and deterioration.
Value of land in existing use plus cost to build replacement building + fees, discounted for obsolescence/depreciation
Could you quickly explain the hierarchy of evidence?
A:* The relative weight attached to comparable evidence:
o Open market lettings
o Lease renewals
o Rent Review
o Independent expert determinations
o Arbitrator determinations
o Court determinations
o Court determinations under L and T Act 1954
o Sale and Leasebacks
o Surrender and renewals
Why are lease renewals ranked above rent reviews in the hierarchy of evidence?
Because rent reviews are usually upwards only therefore do not reflect the market. However, lease renewals more accurately reflect the market
What is the purpose of the Redbook?
To promote and support high standards in valuation delivery worldwide.
Could you just talk me through what was included within your terms of engagement?
- Property address
- Name and status of valuer
- Name of client
- Currency
- Purpose of valuation
- Basis of valuation (MR, MV)
- Valuation Date
- Agreed fee/timescale
- Details of loan if applicable
- Special Assumptions
- Format of report
- CHP
- PI cover
- Limitations of liability
- Ensure the TOE are signed
What is your firms PI cover?
That is commercially sensitive information but I can say it is between 4 and 12 million.
Where in the Redbook does it state guidance for secured lending valuations?
VPGA2 - Valuations for secured lending and dealing with COI for this and to be transparent with them.
What Redbook guidance is given in relation to secured lending valuations?
Any previous current or anticipated involvement with the borrower or the property to be valued must be DISCLOSED.
Previous involvement is defined as within the PAST 2 YEARS.
Instruction should be declined if creates a conflict. Examples include having a longstanding professional relationship with the prospective owner/borrower. When the valuer will gain a fee from introducing the transaction to the lender. When the valuer is retained to act in the disposal or letting of the completed development.
Valuers responsibility to decline or manage the conflict which must be recorded in writing in TOE and Report.
if a special assumption is made, it must be stated with and without that special assumption
Did you measure the property at Poole? If so on what basis?
A colleague measured the property on GIA basis.
How did you calculate the site density?
Building area/site coverage X 100
What is the average site coverage for an industrial unit?
40%
What statutory due diligence did you undertake for this valuation?
- EPC certificate
- Asbestos register
- Flood risk
- Planning history and policy
- Rateable value
- Title
What is defined as Market Rent?
The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and lessee on appropriate lease terms in an arm’s length transaction, after proper marketing, where both parties had acted knowledgably, prudently and without compulsion
How did you assess the covenant strength?
Obtained a CreditSafe report, which summarised the past 3 years’ worth of audited accounts. This generates a ‘Risk Score’ based on the combination of the key financials including a company’s turnover, pre-tax profit, shareholders’ funds and credit limit.
Why did you use a SWOT analysis?
To assist with forming my opinion of suitability of the property for secured lending purposes.
What do you mean that the property was reversionary?
It was under rented and therefore on renewal of the lease the market rent would revert to the market level.
Could you just briefly talk me through your Term and Reversion method?
Term and reversion (where the market rent is more than the passing rent)
* Capitalise the remainder of the term (up until the next break, rent review, expiry/lease event). Then capitalise the reversion into perpetuity. Then add the two together
What lease terms impact value?
Lease term, rent, repair covenants, Inside/Outside the Act.
What are purchaser’s costs for a SALE?
- Agents Fees- 1%
- Legal Fees - 0.50%
- Stamp Duty -Commercial property:
o £0 -£150,000 – Nil
o £150,000-£250,000 – 2%
o Over £250,000 – 5% - The brackets are different in England, Wales and Scotland depending on government.
- VAT - 20%
What are the Stamp Duty Land Tax brackets?
- Commercial property:
o £0 -£150,000 – Nil
o £150,000-£250,000 – 2%
o Over £250,000 – 5% - The brackets are different in England, Wales and Scotland depending on government.
For the Healthcare Facility in Portsmouth what was the use class?
Class E of the Town and Country Planning (Use Classes) Order 1987, as amended.
What other purposes could you undertake a valuation for?
Insurance valuation.
What are the exceptions to a Red Book valuation?
Agency purposes, internal purposes, statutory function, expert witness evidence, negotiation or litigation
How do you ensure you are competent?
Review skills, experience, understanding and knowledge
